General Criteria

A broker is an intermediary in stock exchange transactions, acting on behalf of their clients. An individual or organization can only operate on the exchange through a broker—a professional participant in the securities market. The professional participant must be licensed, and only they have the right to purchase a trading place on the exchange.

When choosing a broker, it is important to consider factors such as reliability and experience. You should also ensure that the broker is a member of the trading platform you plan to work with.

It is crucial to assess the choice of the trading system for access to quotes and transactions. There are numerous computer programs provided by brokers for free to their clients for access to stock trading. Additionally, the broker should provide access to trading via phone in case of technical failures.

You should also consider the cost of service. A percentage is charged on market operations regardless of the success of the transaction, so the commission should be minimal. Moreover, it is necessary to clarify the cost of depositing and withdrawing funds from the market.

Almost all brokers work with clients starting from a certain initial investment amount, which should also be clarified, along with the leverage ratio. Remember, high leverage can lead to the loss of your deposit.

This analysis should be conducted by a professional trader independently before opening a real trading account and transferring funds to the broker.

Currently, there are many simulators or “kitchens” on the internet that pose as professional brokers and offer trading in various financial instruments. For novice traders, it is almost impossible to independently determine whether they are conducting real transactions on the exchange through a broker or operating within a trading simulator.

Such schemes are used by small retail companies that serve small investors. These companies conduct transactions in their own name and at their own expense, without bringing the client to the real market.

Besides the issue of a client’s access to the real market, another critical factor is the professionalism of the broker and the reliability of their software (trading terminal).

Let’s now try to understand who is who so that you can make an informed choice about which company to open an account with. To do this, we will examine the specific schemes by which companies—intermediaries in exchange services—work with their clients.

Scheme 1: “Kitchen”
This is so named because the broker does not take clients’ transactions to the real market. Traders “cook” within the company itself. With such an organization of trading, your broker’s earnings do not depend on commission but on the trader’s lost deposit. In this scheme, there is a direct conflict of interest between the client and the company, as the company must pay the trader from its own funds if the trader profits.

Traders who trade profitably in such companies usually experience worsening trading conditions. Other measures are also applied, such as the removal of transactions from the terminal (especially if trading is conducted through the MT4 trading terminal) and simple non-payment of funds. These actions, of course, fall under criminal law, but this does not make the situation easier. After all, you come to the exchange to trade, not to fight for the return of your invested or earned funds.

Scheme 2: “Half-Kitchen”
They work under the same scheme as the previous one, but larger clients are brought to the real market through STP (Straight Through Processing). If the dealing center has such accounts, then the client has a chance to enter the real market through a liquidity provider. However, no one can guarantee this for you.

The term “dealing center” itself is not inherently bad; it is essentially the same trading platform with trading places for traders. However, their connection usually leads nowhere. The client sees a stream of quotes on the monitor, and pressing the “buy” or “sell” buttons fixes the operation’s price but does not send the order to the real market. All transactions are fixed within the dealing center.

Scheme 3: “Professional Brokers”
A broker takes all transactions to the market and does not conflict with their client, as they earn on the spread difference and commissions from trading operations, not on draining clients’ accounts. They are interested in the trader trading successfully and frequently and increasing their trading volume. However, they will never recommend that the client increase their deposit. A professional broker cares about their client by providing quality services and the best trading conditions, aiming for the client to stay with the company and earn for as long as possible.

How to distinguish a professional broker from a “kitchen”?
First of all, pay attention to the availability of public information about the company:

• Place of registration;

• List of founders;

• Presence of licenses from official regulators, not voluntary organizations;

• Reporting and founding documents.

For a professional broker, the place of registration of the company always coincides with the place of taxation and licensing.

A professional broker:

• Executes orders at market prices;

• No re-quotes;

• Slippage occurs both positively and negatively;

• No restrictions on trading, such as the amount of profit on one transaction, closing a deal before a certain time, placing an order close to a certain level, or the frequency of transactions per unit of time;

• The broker provides a depth of market where you can always see the limited buy and sell orders for an asset;

• If the trading volume increases, the client can expect better trading conditions (lower commission).

Dealing center (“kitchen”):

• Low order execution speed;

• Fixed spreads;

• Constant slippage against the client;

• Deterioration of trading conditions if you start trading profitably;

• You cannot close a deal before a certain time after opening it;

• Ability to place a lock;

• No daily trading reports on your transactions;

• Delays in withdrawing funds;

• Bonuses, insurances blocking the withdrawal of your funds;

• Constant client harassment from company employees offering various strategies, bonuses, consultations, signals, robots, and other “features” that ultimately lead, if not to the loss of the deposit, then definitely to problems with withdrawing funds.

ATTENTION!!!
As of August 2018, new financial market regulations came into force, according to which retail clients in Europe are prohibited from being offered leverage higher than 1:30. This reduces the risk of losses in margin trading. Therefore, any company offering you higher leverage should raise your increased attention and caution. You will definitely not find such companies in England, America, Cyprus, and Germany.

Only Australian brokers offer their clients the opportunity to trade with higher leverage, but only from the Pacific region, so as not to conflict with European and North American legislation.

So how do you find the right broker to open an account with?
This is another important issue that needs to be addressed.

It won’t surprise anyone if I say that the most popular and quickest way to find what you need is to ask Google. By entering the phrase “Choose a Forex broker” in the search bar, you will see many offers from various companies with a wide range of conditions. However, if we start to delve into the details and analyze the information posted on the websites of companies providing brokerage services, we will encounter an unpleasant situation. All the companies listed on the first 2-3 pages fall under our definition of “kitchen”. They are registered in some islands, with appropriate licenses, no reporting on the site, a bunch of offers for various bonuses and conditions that make your head spin. Given the above, a competent trader will, of course, understand that this is not what they need.

The only correct recommendation is to look for a broker on the exchange! Yes, exactly there! Go to the official website of any stock exchange, whether MICEX, NYSE, TSE, or the London Stock Exchange, and you will find full information about who trades on this exchange. You will receive a complete list of brokers licensed by this exchange, and all that remains is to find the one whose trading conditions satisfy you. Of course, among these companies, there may be those registered in offshore zones, but there will be no issues with withdrawing funds or draining the deposit.

It is slightly more difficult with forex brokers, but there are also trading platforms where you can find a list of licensed brokers. These trading platforms are comparable to the aforementioned stock exchanges. From their website, you can directly go to the websites of brokers they work with, familiarize yourself with the trading conditions, and open an account with them. Of course, not every broker will be ready to work with a retail client, but they will recommend a company that suits your deposit. A list of trading platform websites will be provided below this video.

You can write to any of these platforms, and they will send you a list of recommended brokers in response. Of course, you need to ask clear and competent questions; otherwise, you will simply be refused the opening of an account, and they will be right. You cannot enter the market without proper training, financial capabilities, and an understanding of exchange trading. Working on the exchange is for those who have money and know how to work with it!

OPTIMAL FOREX BROKER (PERSONAL OPINION)

• A company registered in the UK with an FCA license;

• No locked positions;

• Direct market access with a commission of no more than $40 per million, regardless of the deposit;

• Independence from the manager, the ability to trade both online and by phone 24/5.